A review of input and output policies for cereals production in India

This paper reviews the key policies with regard to agriculture inputs such as seed, fertilizer, water, agricultural equipment, research, extension, and agricultural credit. It also provides an overview of the policies and programs related to agricultural output markets that are crucial for improving cereal production in the country.

A review of the past performance and policies of India’s foodgrain sector reveals that the main drivers of growth have been modern inputs and technology, institutions, and markets with the changing role of the public and private sectors. The present challenge facing Indian policymakers is to efficiently balance food security concerns and higher growth objectives. This will require not only pushing the production frontier to sustainably augment supply, but also ensuring strategic management of foodgrains including procurement and distribution.

The review of input policies highlights the pressure placed on foodgrain systems, in a business-as-usual scenario that extensively subsidizes input and promotes their intensive usage. Fallouts such as excessive groundwater withdrawals and distorted application of nitrogenous fertilizers have implications on the environmental sustainability of natural resources apart from being a considerable fiscal burden. The current policy of subsidizing agricultural power, irrigation, and fertilizers has outlived its relevance and is actually constraining agricultural investments in areas where the returns are higher. Although it is difficult to completely remove these subsidies, they still need to be gradually phased out and converted into investments in rural infrastructure (especially roads) and research and extension systems, which desperately need to be (re)vitalized. It is time the government started to actively partner with the private sector (in infrastructure creation and research) and civil society organizations (in extension), as they have played an increasingly important role in recent years.

The review of the output management policies show that the current policy paradigm consisting of public procurement of grains at a preannounced minimum support price, public storage, and public distribution has resulted in distortions across crops, especially rice and wheat, as well periodic buildup of large stockpiles and stock rundown of these grains at a high cost to the government. Moreover, public procurement and stocking, coupled with interventionist international trade policies, is often at variance with the trends in international markets, resulting in lost opportunities for Indian exporters of rice and wheat. The regional concentration of the system of public procurement in the northern states, aided by intra-country trade and movement restrictions, has also resulted in large spatial disparity in agricultural productivity and farm income as well as uneven development of output markets across states. As a result, producer and consumer welfare is often compromised, even though the government’s objective is to maintain a balance between them. Major reforms on the output side would include linking of MSPs with market prices, allowing futures markets in cereals, liberalizing international trade and bring forth greater competition in domestic trade to ensure output markets are more uniformly developed across states and that the country has a truly integrated market for foodgrains.